UK financial body urges quick action over foreign exchange 'fixing'

The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013.

Reuters/Chris Helgren

LONDON Regulators should deal quickly with allegations that banks have rigged the $5.3 trillion-a-day foreign exchange market to avoid harming Britain's reputation as a financial centre, a top industry official said on Tuesday.

Chris Cummings, chief executive of finance sector lobby group The CityUK, said the sooner the allegations are dealt with the better for London, which accounts for 40 percent of the global currency market.

"It's really important that people that have broken the law are subject to the full sanction of the law," Cummings told Reuters on the sidelines of a financial conference.

The global investigation into manipulation allegations centre on the so-called "London fixing" that is set daily. It is used to price trillions of dollars' worth of investments and deals and is relied upon by companies, investors and central banks.

"The best thing that you can do in these circumstances is that firms fully cooperate with the regulatory authorities and for those authorities to act swiftly. Our reputation as a leading financial centre is built on good business and clean business," Cummings said.

Britain's Financial Conduct Authority, one of the global regulators looking into the foreign exchange market, has said that enforcement proceedings were unlikely this year.

The allegations are every bit as bad as the scandal seen in the London Interbank Offered Rate or Libor, an interest rate benchmark used to help price trillions of dollars of products, the FCA has said.

Cummings was speaking as Bank of England Governor Mark Carney was being quizzed by UK lawmakers about what the central bank knew about alleged wrongdoing in the currency market.

The Libor scandal sparked a wider review of benchmarks by regulators, including the ISDAfix, used in the world's $700 trillion financial derivatives market.

Like Libor, it is being revamped after a U.S. regulator began a probe into banks who submit quotes to it.

ISDAfix was set up by the International Swaps and Derivatives Association, a trade body which told reporters on Tuesday that the benchmark is now robust.

A new, independent administrator for ISDAfix will be named within two months or so, a reform completed for Libor last month.

"We are moving into something which is as near bullet proof as can be," George Handjinicolaou, ISDA deputy CEO, said "Whether it will be enough it remains to be seen."

ISDA has no connection with Libor setting but ISDA Chairman Stephen O'Connor is a member of an international group advising the global Financial Stability Board (FSB), which is chaired by BoE's Carney, on finding more fool proof alternatives to Libor.

"There will be alternatives recommended but it will be down to market participants whether to continue with Libor or choose something different," O'Connor told reporters.

The FSB is due to publish its findings mid-year.

The European Union has proposed a draft law to regulate all major benchmarks in the 28-country bloc but disagreements among EU lawmakers now means it faces a delay of many months due to upcoming European Parliament elections in May.

The Index Industry Association, which represents administrators of indexes, said on Tuesday said the delay is a missed opportunity to restore confidence in markets.